Amidst the fluctuations in India’s real estate landscape due to varying home loan rates, Ahmedabad, Pune, and Kolkata have emerged as the most affordable housing markets in the country. The affordability index, a measure of the ratio of Equated Monthly Instalment (EMI) to income for an average household, places Ahmedabad at the forefront with a 23% ratio, followed closely by Pune and Kolkata at 26% each. These findings come from Knight Frank India’s Affordability Index, which sheds light on the current status of housing affordability in India.
The period from 2010 to 2021 witnessed a steady improvement in housing affordability across the eight leading Indian cities, a trend that was particularly notable during the pandemic. The Reserve Bank of India’s (RBI) decision to reduce the Repo rate to decadal lows played a pivotal role in bolstering affordability during uncertain times.
“The RBI’s adept handling of the inflationary scenario has instilled confidence in the country’s economic environment,” remarked Shishir Baijal, CMD of Knight Frank India. This confidence has translated into a surge in residential and office demand, even as global office markets faced challenges. However, Baijal notes that while the market remains robust, potential future interest rate hikes could exert pressure on homebuyer capabilities and sentiments.
Except for Mumbai, all major markets demonstrate affordability levels well below the 50% threshold. Mumbai’s affordability ratio has marginally risen to 55% from 53% in 2022. Hyderabad and the National Capital Region have seen their affordability ratios increase by 1% each to 31% and 30% respectively, while Bengaluru and Chennai’s ratios have risen to 28%.
Jaxay Shah, CMD of Savvy Group, attributes Ahmedabad’s commendable affordability level to factors such as faster approvals, ample floor space index (FSI) for affordable housing, a well-connected mass transit system, and developed social infrastructure. He emphasizes that while prices have begun to appreciate, the attractiveness of the market is sustained by the time correction observed over the past few years.
Despite the central bank raising the Repo rate by 250 basis points since May 2022 to combat inflation, demand has remained steadfast, maintaining multi-year highs. Although the rate hikes have impacted affordability by an average of 2.5% across cities and increased the EMI load by 14.4%, the real estate sector continues to thrive.
The first half of 2023 witnessed robust housing demand, recording the second-highest half-yearly residential sales volume in nearly a decade. However, the affordable and low-cost housing segment, once a growth driver, is now encountering a slowdown in sales momentum due to the impact of higher mortgage rates.
While the central bank has temporarily paused rate hikes, the persistent high mortgage rates have affected the demand for affordable and low-cost housing. Despite the challenges, the top eight housing markets in India recorded a sale of 156,640 units in the first half of 2023, demonstrating the resilience of the sector amidst changing market dynamics.
